24 March 2017

How to Respond to the Change of Statute of Limitations in the General Provisions of the Civil Law

By Lei Jiping (Partner), Li Shikai (Associate)

A Statute of Limitation defines the maximum time after an event in which proceedings may be initiated. Under the General Principles of the Civil Law of the People’s Republic of China (the “Principles”), this period is usually two years. However, Article 188 of the new General Provisions of the Civil Law of the People’s Republic of China (the “Provisions”) extends the limit to three years, starting from “the date when the right holder knows or should know of the infringement of rights and the obligor”.

Li Jianguo, Vice Chairman of the Standing Committee of the National People’s Congress stated[1]

“When the Provisions come into force, the Principles will not be repealed for the time being, but in the case of any inconsistency, the Provisions will prevail.”

In terms of limitation, the Provisions do not explain how the transition from the Principles will occur. The Supreme People’s Court (“the Court”) is expected to make relevant judicial interpretations.

Two pertinent questions regarding the transition are: 

  1. Is the three-year limitation period in the Provisions retrospective? If it is, regulations need to be made. 
  2. Where an inconsistency regarding a limitation period occurs, do the Provisions or the Principles prevail? 

Some believe that the limitation period in the Provisions is not retrospective. In this case the Principles would apply if the infringement occured before the Provisions come into force on 1 October 2017. The Court provides some support for this view[2].  The Decision of the Standing Committee of the National People's Congress on Amendment of the Administrative Litigation Law (the “Decision”) extended the limitation period from three to six months. The Decision came into effect on 1 May 2015. The old Administrative Litigation Law applied when the three-month period expired before 1 May 2015[3]. Otherwise, the amended Administrative Litigation Law applies.

Others think that the statute of limitations in the Provisions is retrospective. This would mean that even if an infringement occured before the Provisions come into force, the three-year period would apply. If it does not apply, then special regulations should be made to include infringements occuring before 1 October 2017.

The Court supports this view, stating that 

“If the claimant knows or should know his civil rights are infringed before the Principles are implemented but appeals to the Court after their implementation, Articles 135 and 136 of the Principles shall apply to the period of limitations, from 1 January 1987.” [4]

Also, Article 4 of the Law Governing the Application of the Part of Right over Things of the Civil Code (amended 2009) in Taiwan provides that 

“Prior to the Part of Right over Things of the Civil Code, if a limitation period had expired (or would in less than a year), a claim could be initiated up to one year after the application date. However, this provision would not apply if the period between the date the limitation period expired and the application date is more than half the length of time of the limitation period under the Part of Right over Things of the Civil Code. If the limitation period has expired or has less than one year for expiration after the application of the amended Part of Right over Things of the Civil Code, this provision will also apply.”

The extension of the limitation period to three years responds to today’s reality and judicial practices – such as changing social lives, innovative methods and transactions, and more complex relationships between rights and obligations. Extending the period provides better protection for creditors and is evidence of a more credible society. The Court may use its judicial power to regulate the transition and further protect creditors’ rights and interests. 

For example, the Court may decide that:

  1. If a claimant knows (or should know) an infringement occurred before 1 October 2017, Articles 135 and 136 of the Principles apply. The limitation period would start from the date when a claimant knows (or should know) about an infringement; or
  2. If a claimant knows (or should know) an infringement occurred between 1 October 2015 – 1 October 2017, Article 188 of the Provisions applies; or 
  3. The Court will accept claims where infringement occurred prior to the Provisions if they are: filed before 1 October 2018; no more than six months has passed since the limitation period ended; or the limitation period has less than a year before it ends; or
  4. If a claimant knows (or should know) of an infringement before 1 October 2017, Article 188 of the General Provisions applies. This would start from the date when the claimant knows (or should know) of the infringement and the obligor; or
  5. If a claimant knows (or should know) of an infringement before 1 October 2017, the limitation period shall be governed by Article 188 of the Provisions from 1 October 2017.

The protection for creditors increases from the first to the fifth options. The first possibility is that statute of limitations is not retrospective. The second, fourth, and fifth options are based on the Court’s existing judicial interpretations. The third one follows Taiwan. The fourth and fifth options provide for a retrospective limitation period. 

In addition, Article 188 of the Provisions will not apply for retrials on judgments occuring before 1 October 1 2017, or retrials in the Court in accordance with the trial supervision procedure. This is because of the res judicata principle.

During the transition, creditors can safeguard their rights and interests by:

1. Interrupting the limitation period by filing a lawsuit, filing claims against the debtor, or obtaining evidence of the debtor’s consent to perform his/her obligations (as long as the old two-year limitation period has not expired).  

2. If the two-year limitation period has expired (but no more than three years has passed by 1 October 2017) –

  • Actions against debtors: when a ruling occurs before 1 October 2017 (for example, the first-instance judgment), the Court will follow the Principles and may rule against the creditor; whereas if a ruling occurs after 1 October 2017 (for example, the second-instance judgment) and the Court adopts a retrospective view, the Provisions will be followed and the creditor is more likely to win the case. 
  • Debt collection: debt collection will not cause interruption of the limitation period before the Provisions are implemented when the two year limitation period has expired. 
  • When a claim is made after the limitation period, if the debtor signs or seals a Debt Collection Notice, the limitation period may be recounted. [5]Therefore, a signature or seal affixed by the debtor to the Debt Collection Notice during this period will guarantee mandatory protection for creditors.

3. If the old two year and the new three year limitation periods will have both expired by 1 October 2017, a creditor can make a claim in the meantime to interrupt the limitation period. Otherwise, expiration of the right to make a claim is inevitable (unless it complies with the above provisions in Fa Shi [1999] No.7 or unless the Supreme People’s Court decides that the three-year period has not expired after the General Provisions come into force).

[1]In his explanation on the draft General Provisions on 8 March 2017.

[2]See the Judicial Interpretation on the Administrative Litigation Law (the “Interpretation”).

[3]According to Article 26 of the Interpretation and its drafter’s explanation in the Several Specific Transitional Issues on the Administrative Litigation Law.

[4]Article 165 of the Opinions on Several Issues concerning the Implementation of the General Principles of the Civil Law.

[5]See the Reply of the Supreme People’s Court on the Legal Consequence of a Signature or Seal Affixed by the Debtor to a Notice Demanding Payment on a Loan after the Expiry of the Period of Limitation of Actions (“Fa Shi [1999] No.7”) (最高院关于超过诉讼时效期间借款人在催款通知单上签字或者盖章的法律效力问题的批复) that came into force on February 16, 1999.

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